Canadian housing market trends have evolved mostly as predicted in the Canadian Real Estate Association (CREA)’s last housing market forecast, published in September. Sales activity in British Columbia is showing signs it will return to more normal levels, and sales in Ontario continue to set new records despite a shortage of supply in the Greater Toronto Area (GTA) and the surrounding region.
Mortgage regulations tightened further after CREA’s previous forecast. It is expected that soon, tightened regulations are expected to reduce the number of first-time buyers that qualify for mortgage financing, especially in more expensive markets where there is a severe shortage of lower-priced homes for sale. Tightened mortgage regulations and lending guidelines are also expected to increase capital costs for lenders, causing modest increases in mortgage interest rates in 2017. The CREA did not include these factors when making its last forecast, and they have resulted in downward revisions to sales and average price predictions for 2017.
Nationally, sales activity is expected to climb 6.2 per cent to 536,700 units by the end of 2016, which is slightly higher than the CREA previously forecasted. Projected annual sales for 2016 would represent a new annual record for national activity, increasing 3.3 per cent from the previous record set in 2007. However, when adjusting for population growth, sales remain below 2007 levels.
British Columbia is expected to post a 10 per cent increase in activity, the largest surge in activity expected among the country’s most populous provinces, due to unprecedented sales strength early in 2016. Ontario’s annual increase is projected to reach nine per cent.
Overall, Prince Edward Island is anticipated to post a 22.4 per cent increase in sales for 2016, the largest annual percentage increase this year. P.E.I. joined the ranks of British Columbia, Manitoba and Ontario as the only four provinces to set new annual sales records in 2016.
Alberta is expected to show an 8.1 per cent decline in sales for 2016, while Saskatchewan’s housing activity is expected to fall by 4.6 per cent. Activity in Newfoundland and Labrador should remain relatively unchanged from 2015 levels.
Meanwhile, sales are forecast to rise in Manitoba (four per cent), Quebec (5.8 per cent), New Brunswick (6.1 per cent) and Nova Scotia (4.9 per cent). In Quebec, New Brunswick and Nova Scotia, sales activity has been slowly gaining momentum, allowing 2016 to mark a multi-year high for annual sales.
Year-over-year average price gains have continued to climb in Ontario due to strong demand and an unprecedented supply shortage. At the same time, average prices in British Columbia have fallen due to a sharp decline in multi-million-dollar single-detached home sales in the Lower Mainland. Because of this, the projected annual average price for Ontario in 2016 has been upwardly revised following the last CREA forecast, while the projected annual average price for British Columbia has been revised downward.
Average prices appear to be stabilizing in Alberta and Saskatchewan, but remain lower than year-ago levels in Newfoundland and Labrador. Average prices in other provinces are either rising slowly or remain level, reflecting a well-balanced supply and demand for housing stock.
The national average price for a home in 2016 is now expected to rise by 10.5 per cent to $489,500, but in British Columbia, the average price is predicted to climb 8.1 per cent, which will be offset by Ontario’s gains of 15.1 per cent. Manitoba, Quebec and New Brunswick are expected to see modest gains under 2.5 per cent, while Alberta, Saskatchewan and Nova Scotia, prices are projected to remain relatively stable. In Prince Edward Island, the average price of a home is set to climb 11.6 per cent due to a very strong price gain recorded in the third quarter. Meanwhile, the CREA believes that in Newfoundland and Labrador, the average price of a home will fall 6.7 per cent.
The CREA predicts that in 2017, there will be 518,900 home sales nationally, a 3.3 per cent decline compared to projected activity this year. Transactions in B.C. and Ontario should remain strong but drop compared to 2016 levels due to falling affordability, an ongoing shortage of affordably-priced listings for single-family homes and tightened mortgage regulations. British Columbia home sales are expected to decline by 12.2 per cent, while Ontario is expected to see a 2.7 per cent drop in sales.
Sales are also predicted to slow in 2017 in Saskatchewan, Nova Scotia, Prince Edward Island and Newfoundland and Labrador. Home sales are expected to climb in Alberta (3.5 per cent), Quebec (1.2 per cent), Manitoba (0.8 per cent) and New Brunswick (1.6 per cent). In Alberta, the moderate increase mostly reflects slow sales activity in the first quarter of 2016, which is not expected to reoccur in 2017.
Notably, the national average price is expected to fall 2.8 per cent to $475,900 next year, with slight gains near or below inflation in Manitoba, Ontario, Quebec, New Brunswick and Nova Scotia, along with small declines in Alberta, Saskatchewan, Prince Edward Island and Newfoundland and Labrador.
Although the average sale price of a home in B.C. is expected to fall by 7.8 per cent in 2017, this is mostly due to an anticipated decline in single family home sales activity at the higher end of the market, particularly in the Lower Mainland.
Meanwhile, a large supply of listings relative to demand is expected to keep price gains in check in other provinces, although sales have begun to deplete inventories in provinces where supply had been higher in recent years.